Mid-Month Pricing Update and Forecast for September

Article Courtesy of Michael Orr
The Cromford Report

Each month about this time we look back at the previous month, analyze how pricing has behaved and report on how well our forecasting techniques performed. We also give a forecast for how pricing will move over the next 30 days.

For the monthly period ending September 15, we are currently recording a sales $/SF of $78.83 averaged for all areas and types. This is 0.7% lower than the $79.40 we now measure for August 16. Our forecast range was $77.17 to $80.21 with a mid-point of $78.74. Once again our forecasting technique proved remarkably accurate as the actual figure is only 9 cents higher than the mid point of our forecast range. The reason for the unusual accuracy over the last two months is that the market has remained fairly stable although it did change substantially after mid June. For the last three months sales activity has been concentrated at the bottom end of the market with the middle and top end much weaker than during the spring.

On September 15 REO sales across Greater Phoenix (all types) averaged $61.65 per sq. ft. (up a substantial 3.5% from August 16). Pre-foreclosures and short sales averaged $73.27 (down 0.3%) while normal sales averaged $100.73 (down a startling 4.9%). Normal sales gained market share, moving from 32.4% to 33.1% of sales, while REOs lost substantial market share, moving from 45.0% to 41.4%. Short sales and pre-foreclosures were the winners again this month, moving from 22.6% to 25.4% and recovering from a dip in August after a strong spike at the end of June. 

On September 16 the pending listings for all areas & types showed an average list $/SF of $78.47, 0.5% above the reading for August 16 - the first time we have seen a rise for several months. Among pending listings we have 27.6% normal, a sharply declining 35.0% REO and a fast growing 37.4% in short sales and pre-foreclosures. The average pricing for pending listings on August 16 in each category were: $108.70 normal, $68.90 short sales & pre-foreclosures and $60.82 for REOs. We can see that compared with last month the pending $/SF averages are up for REOs, but down for normal listings and (especially) short sales.

The price gap between REOs and short sales has narrowed substantially and disappeared completely for several price ranges.

Our new mid-point forecast for the average monthly sales $/SF on October 15 is $79.21, which is 0.49% above the September 15 reading, and we have a 90% confidence that it will fall within ± 2% of this mid point, i.e. in the range $77.63 to $80.79. A substantial change in the mix can have a significant effect on the average price per sq. ft. and we are still seeing considerable variation from day to day.
 
Since we are projecting a small and insignificant rise in pricing it is possible that our reading for August 25 - $78.69 per sq. ft. - will remain the low point over the near term. While prices for lender owned homes are on the rise, short sales and normal listings are still displaying considerable price weakness, so the overall price direction is still vague. The lowest monthly average sales price is $150,201 set on August 25. However the record low monthly median sales price is still standing at $107,000 and this was set seven months ago on February 24. Our current monthly median sales price is back at $110,000, where it has been for the majority of the last 9 months.

There have been several media stories making a big deal about increased foreclosure numbers in August. Outside Arizona, and especially in judicial foreclosure states. these may have had some significance. Inside Maricopa County, they seem to have no significance at all. The rise in completed foreclosures from July to August was small at 8% and less than the 15% increase in the number of days that the calendar gave the trustees to work. There was a noticeable rise in foreclosure notices issued by Recontrust, the company that handles the notices for Bank of America. However the notices for other trustees were at roughly the same level as July and substantially down from 2010. The underlying downward trend is reinforced by the month to date numbers for September. We are projecting about 4,500 new foreclosure notices during September, a drop of some 16% from August and about 2,850 trustee sales, a drop of about 21%. Part of the drop is because September has 9% fewer working days (21) than August (23). Nevertheless it still looks like the foreclosure tide is on its way out, and the inventory of bank owned homes continues to fall, as does the count of pending foreclosures.

Contrary to Statements By the Media, the Maricopa County Foreclosure Rate Dropped in August

Article Courtesy of Michael Orr
The Cromford Report

There were 2,914 trustee sales for single family homes in Maricopa County in the calendar month of August.


There were 2,701 similar sales in July.


You might think that this indicates trustee sales were increasing. However you would be wrong.


There were only 20 working days on which trustee sales could be held in July, while there were 23 in August. This means that we should have expected the August number to be 15% higher if the daily foreclosure rate was flat. In fact the daily rate of foreclosure fell by 6% from 135 per working day in July to 127 per working day in August, continuing the strong downward trend we have seen since March.


This indicates how overly-simplistic mathematical logic can send entirely the wrong message that foreclosures are increasing when they are not. Our calendar is a strange device that can distort our view of the market unless we take its idiosyncrasy into account. That's why we measure 7-day, 30-day and 90-day moving averages rather than relying purely on calendar month totals. 


As of September 12 we have seen only 912 trustee sales recorded for all property types since September 1. This is an exceptionally low number. If trustee sales continue at this rate throughout September (with its 21 working days), then the total for September will be close to the total last November (with only 19 working days) when we had several institutions including Bank of America doing no trustee sales at all while they addressed the national robo-signing controversy. September looks very likely to be a very weak month for foreclosures, measured on both a calendar month and daily rate basis. In fact the 90-day average for the daily rate of foreclosure is today at the lowest level since July 2008, over 3 years ago.


When correctly measured, the rate of foreclosures is currently falling fast. Do not let the stories in the media mislead you!

The Rental Picture

Article Courtesy of Michael Orr
The Cromford Report

The percentage of people renting their home has increased significantly since 2007 because so many individuals and families have lost the house they once owned to foreclosure or short sale.
  
Although the majority of rental transactions happen outside of the ARMLS system, a significant number are advertised and conducted through ARMLS and their transaction database gives us a very useful sample of what is happening out there in the rental world, particularly for single family detached homes. 


Demand:
On September 11, the rate with which leases are being signed is 2,828 per month. This compares with 2,553 on September 11, 2010 and 2,425 on September 11, 2009. A growth rate of 5.3% from 2009 to 2010 has doubled to 10.8% over the last year. These figures are for all property types. If we look exclusively at single family detached homes there were 2,222 per month in 2011, 1,900 in 2010 and and 1,891 in 2011, all measured on September 11. The growth rates were almost zero from 2009 to 2010 but nearly 17% from 2010 to 2011. Notice that single family detached homes were 79% of the total rental leases closed through ARMLS in the most recent month, up from 74% last year.


Supply:
On September 11, there are 4,893 single family detached homes offered for lease out of a total number active listings of 7,059. First we can see that the single family homes constitute only 69% of the active listings but 79% of the closed leases, suggesting that their turnover is faster than for condos and mobile homes. However that 69% has grown from only 58% at the same date last year. In fact supply of single family detached homes reached an unusually low number of only 2,852 on April 1, 2011 and has increased by nearly 72% since then. Clearly a large number of new rental homes are coming onto the market to meet the strengthened demand. In fact supply is growing faster than demand judging from the last 5 months, although this is coming off a period when supply was falling fast.


Pricing:
The average rental rate across the ARMLS territory for single family homes is currently between 68c and 69c per sq ft. Last year at this time it was 66c to 67c so we have seen a slight increase in rental rates over the twelve month period. This continues a trend from 2009 since we were measuring 64c to 65c back then. It remains to be seen whether this pattern will continue now that supply seems to be on a strong upward trend.


Although we do not publish rental charts on this web site, we do run a number of custom Cromford rental reports for clients and if you wish to dig deeper into this data please send an email describing your needs and requesting a price quote.

Remembering 9/11

Today I'd like to share an wonderful email that I received which tells about the Canine Heroes of 9/11 and a poem, called Where Dust and Dreams Remain, that I was moved to write shortly after September 11, 2001.   Please scroll down...
 
May the painful memories of that horrific day, remind us that beyond the darkness there is a light...

Wishing you a day of peaceful reflection.

Canine Heroes of 9/11

During the chaos of the 9/11 attacks, where almost 3,000 people died, nearly 100 loyal search and rescue dogs and their brave owners scoured Ground Zero for survivors.

 

Now, ten years on, just twelve of these heroic canines survive, and they have been commemorated in a touching series of portraits entitled 'Retrieved'.

 

The dogs worked tirelessly to search for anyone trapped alive in the rubble, along with countless emergency service workers and members of the public.

 

Traveling across nine states in the U.S. from Texas to Maryland, Dutch photographer Charlotte Dumas, 34, captured the remaining dogs in their twilight years in their homes where they still live with their handlers, a full decade on from 9/11. 

 

Their stories have now been compiled in a book, called RETRIEVED, which was released on Friday in advance of the tenth anniversary of the attack. Noted for her touching portraits of animals, especially dogs, Charlotte wanted RETRIEVED to mark not only the anniversary of the September 2001 attacks, but also as a way to offer special recognition for some of the first responders and their dogs.

 

'I felt this was a turning point, especially for the dogs, who although they are not forgotten, have not been as prominent as other stories surrounding 9/11,' explained Charlotte, who splits her time between New York and Amsterdam.

Moxie, 13, from Winthrop, Massachusetts, arrived with her handler, Mark Aliberti, at the World Trade Center on the evening of September 11 and searched the site for eight days

Tara, 16, from Ipswich, Massachusetts, arrived at the World Trade Center on the night of the 11th. The dog and her handler Lee Prentiss were there for eight days

Kaiser, 12, pictured at home in Indianapolis, Indiana, was deployed to the World Trade Center on September 11 and searched tirelessly for people in the rubble
e

Bretagne and his owner Denise Corliss from Cypress, Texas, arrived at the site in New York on September 17, remaining there for ten days

Guinness, 15, from Highland, California, started work at the site with Sheila McKee on the morning of September 13 and was deployed at the site for 11 days

Merlyn and his handler Matt Claussen were deployed to Ground Zero on September 24, working the night shift for five days

Red, 11, from Annapolis, Maryland, went with Heather Roche to the Pentagon from September 16 until the 27 as part of the Bay Area Recovery Canines

Abigail, above, was deployed on the evening of September 17, searching for 10 days while Tuff arrived in New York at 11:00 pm on the day of attack to start working early the next day

Handler Julie Noyes and Hoke were deployed to the World Trade Center from their home in Denver on September 24 and searched for five days

Scout and another unknown dog lie among the rubble at Ground Zero, just two of nearly 100 search and rescue animals who helped to search for survivors.

 

'They speak to us as a different species and animals are greatly important -- [they enhance] our sense of empathy and [teach us] to put things into perspective.'

Charles Mayfield

Where Dust and Dreams Remain

May the painful memories of September 11, 2001 remind us that beyond the darkness there is a light...

Wishing you a day of peaceful reflection.

Market Summary for the Beginning of September

Article Courtesy of Michael Orr
The Cromford Report

August was similar to July but different from the first half of 2011. Apparently spooked by the debt crisis and the corresponding turmoil in the stock market, the middle and upper end of the market went quiet in July and August, especially for homes over $2,000,000, but the demand for homes under $100,000 continued to go from strength to strength and supply is now very low in several of the lower priced locations.

 Looking into the ARMLS data across all areas and types we see the following:
 
Sales per Month: 8,734 in August - up nearly 3% from July and up 26.5% from this time last year.

 Active Listings (including AWC): 26,820 on September 1 - down 3.5% from August 1 and down 37% from this time last year.

 Active Listings (excluding AWC): 19,216 on September 1 - down 4.8% from August 1 and down 47% from this time last year.

 Pending Sales: 11,508 on September 1, up 0.2% from August 1, and up 17% compared with this time last year.

 Listing Success Rate: 74.4% on September 1 - almost the same as on August 1 and up significantly from 57.5% on September 1, 2010.

 Contract Ratio: 99.5 on September 1, up from 94.5 on August 1 and 41.3 last year at this time.

 Days Inventory: 99 on September 1, down from 105 on August 1 and 172 at this time last year

 Cromford Market Index™: 155.6 on September 1, up from 151.5 on August 1 and 85.5 on September 1, 2010.

 Sales Price as a Percentage of List: 96.79% on September 1, up from 96.55% on August 1 and 95.75% on September 1, 2010

Please don't waste time looking for negative signals among these numbers. There aren't any.  The numbers say the market is in very good shape with demand far outstripping supply. However most potential homeowners (understandably) would disagree. Normal home buyers tend to pay far more attention to their emotions than local housing market data. Most people are still experiencing too much fear to consider home ownership or upgrading, with an uncertain economy, poor employment statistics and the psychology of crowds discouraging them from taking advantage of the lowest pricing in over a decade, even with low interest rates as the icing on the cake. In addition we have some very real factors keeping pricing down. Appraisals are almost universally conservative, often coming in lower than the buyer is willing to pay. Lending is highly constrained by extremely cautious underwriting. A large number of homeowners have negative equity putting a damper on their financial plans. In fact almost everything is the exact opposite of the first half of 2006, when the numbers indicated clearly that the market was headed for disaster but nobody paid any attention. Then we could see appraisals supporting ever increasing prices, lending policies were more relaxed than ever and everybody seemed to believe that prices could only go up. Indeed they believed this right up to the point of collapse.

 Now it seems to be popular to believe that prices will fall further. Indeed with the current negative sentiment it is certainly possible they may fall a little further for a short while, especially if the upper end of the market stays quiet. However it is also inevitable that they will at some point increase from the current level and the market statistics indicate that this may be sooner than most people think. When demand is well above normal and supply is well below normal, prices cannot fall indefinitely. In the past the laws of supply and demand have only been ignored for about 18 months at maximum. Then we have seen them cut in with a vengeance. We have gone 9 months so far with the market indicators and pricing going in opposite directions.

 So where is pricing now?
The lowest point so far for the monthly average sales price on ARMLS is $150,448 on August 25. The lowest point for the overall monthly average $/SF is $78.79, also on August 25. We are currently very slightly above that low point and drifting aimlessly.

The lowest point so far for overall monthly median sales price is $107,000 reached on February 22, with August 9, 17 and 18 all matching that level. We are currently above that low point - back around $110,000 with no clear sign of direction.

The pricing averages are lower than February but the medians are not. This is caused by the relative weakness of the mid to high end market, a weakness which drags the averages down but has only marginal effect on medians. 

In contrast to the spring, prices are now falling at the higher end of the market. The lower end has achieved stability in sales pricing while asking prices are strongly rising and pending prices are showing early signs of increases in certain markets. Competition among landlords for good rental homes is extremely strong and the markets in their favorite locations are very active. This is also reflected in prices paid at trustee sales. which are more competitive now than at any time since 2005. El Mirage, Maricopa, Tolleson, Avondale, all have extremely low levels of inventory, so low that sales volumes are now being affected. The number of lender owned homes for sale in many of these areas is a tiny fraction of the peak level of the winter of 2008/2009. In fact a comparison of REO single family home inventory in January 2009 and September 2011 is very revealing: 

City	REOs Active Now	REOs Active Jan 2009	Change
El Mirage	22	295	-93%
Avondale	41	518	-92%
Maricopa	36	437	-92%
Youngtown	4	49	-92%
Tolleson	26	247	-89%
Tonopah	3	27	-89%
Anthem	9	66	-86%
Carefree	1	7	-86%
Wittmann	6	42	-86%
Queen Creek	87	569	-85%
Buckeye	83	498	-83%
Phoenix	765	4544	-83%
Apache Junction	30	152	-80%
Glendale	175	882	-80%
Coolidge	15	76	-80%
Goodyear	66	311	-79%
Litchfield Park	26	120	-78%
Peoria	109	474	-77%
Casa Grande	34	147	-77%
Surprise	135	541	-75%
Mesa	255	946	-73%
Arizona City	20	74	-73%
Eloy	6	22	-73%
Laveen	59	199	-70%
Florence	26	81	-68%
Fountain Hills	15	46	-67%
Gilbert	144	393	-63%
New River	14	36	-61%
Chandler	130	329	-60%
Scottsdale	120	284	-58%
Gold Canyon	16	37	-57%
Cave Creek	22	50	-56%
Waddell	17	33	-49%
Tempe	45	70	-36%
Paradise Valley	8	12	-33%
Sun City	48	50	-4%
Sun City West	19	16	+19%
Wickenburg	15	8	+87%
Rio Verde	6	3	+100%
Sun Lakes	6	3	+100%

Please go ahead and show this table to those who still talk of a "huge glut of foreclosed homes for sale."

Note that the areas most affected by the foreclosure tsunami are also the ones that have had the biggest declines in lender owned inventory between 2009 and now. El Mirage used to have more REOs than the much larger city of Scottsdale. Now it has only 18% of Scottsdale's inventory. 

Maricopa County Foreclosures in August:
New notices increased by 27% over July. Some of this increases was due to the fact that August had 23 working days whereas July had only 20, but we are definitely seeing a few signs of borrowers getting into more difficulty as the economy sputters. However we must put the August count of 5,318 notices into context. It is lower than every month between March 2008 and January 2011 and so only looks bad because of the low counts between April and July.

The daily rate of trustee sales declined again but because August had more days than July, the monthly total of trustee deeds for August was 3,581, up 8% over July. However in August 2010 we had 5,015 so we are down 29% year on year.

 At the trustee sales in August, 42% of the properties were purchased by third parties, setting a new record of 1,510 third party purchases.